The cryptocurrency industry is hoping that the Union Budget will revisit the existing tax structure on virtual digital assets (VDAs). Key expectations include the establishment of a self-regulatory body for the crypto and blockchain sectors, as well as the creation of sandboxes to strengthen startups within the industry.
The imposition of taxes on crypto transactions has led to a drop in trading volumes on domestic platforms, with many users moving to foreign exchanges. However, recent actions by the finance ministry, including issuing show cause notices to foreign exchanges and blocking URLs, have provided some relief for domestic crypto exchanges.
Industry leaders are urging the government to reconsider the Tax Deducted at Source (TDS) on VDAs, proposing a reduction from the current 1% to 0.01%. Additionally, they look for the ability to offset and carry forward losses from VDA transactions and advocate for treating income from VDAs on par with other capital assets. The aim is to minimize tax arbitrage, preventing the outflow of capital, investments and talent while addressing concerns related to the gray economy in VDAs.
The players want a reassessment of the flat rate of 30% applicable to income from the transfer of VDAs. Specifically, they suggest including foreign exchange in the scope of Tax Deducted at Source (TDS) under Section 194S.
As part of their expectations, industry representatives also want the government to allocate funds for indigenous blockchain projects that demonstrate real utility and innovation. The anticipation is that such financial support will further stimulate innovation within the domestic crypto and blockchain ecosystem.
SRO framework
Following a standardized regulatory framework, industry participants emphasize the need for a robust self-regulatory body for crypto and blockchain sectors. Such an establishment, they argue, would provide clarity and unlock many opportunities and use cases globally, positioning India as a leader in the sector.
To foster growth among startups in the crypto and blockchain space, stakeholders are proposing the creation of tax incentives and sandboxes. The envisioned sandboxes would offer a protected environment for experimentation, fueling the growth of new businesses. This, they believe, will generate employment opportunities, propel India into the global decentralized finance (DeFi) and blockchain arena, and contribute to overall economic growth.